Flight to Quality Accelerates Leasing Activity in the Fourth Quarter of 2017

1/13/18

Class A buildings claim 18 of top 21 deals signed in past year; overall leasing activity up more than 3 million square feet since 2016

Space users preferred Midtown’s Class A buildings by a wide margin, claiming 24 of the top 26 transactions in the submarket in 2017, according to JLL. Midtown recorded 21.6 million square feet of total leasing activity in 2017, surpassing the 21.2 million square feet in deal volume recorded in 2016.

“Five of the top seven leases signed in Midtown in the fourth quarter took place at newly-constructed or renovated offices,” said Sean Coghlan, Director of Americas Research. “Tenants have increasingly concentrated on high-quality buildings in amenity-rich locations, which caused Midtown’s Class A vacancy rate to decrease four quarters in a row to 10.1 percent. We anticipate continued strong leasing at the top of the market in 2018 while Manhattan’s economic fundamentals remain promising, as evidenced by the record level of total office-using jobs and full employment.”

A selection of the top leases signed in Midtown in the fourth quarter of 2017 include EY relocating to 604,295 square feet at 1 Manhattan West; Bank of America Corp. expanding its local presence by 386,000 square feet at 1100 Avenue of the Americas; Ann Inc. renewing its 300,000 square feet at 7 Times Square; Mizuho Americas expanding by 270,000 square feet at 1271 Avenue of the Americas; and Shiseido Co. Ltd. relocating into 225,818 square feet at 390 Madison Avenue.

Sustained activity, particularly in the third and fourth quarters, pushed Midtown Class A average asking rents up nearly $2.50 per square foot to $83.71 per square foot at year-end 2017 from $81.22 per square foot at year-end 2016. The year-over-year 3.1 percent rate of growth seen by the submarket’s Class A product was nearly identical to the average growth recorded from 2009 to 2016. Overall rents in Midtown increased by a more modest 1.5 percent year-over-year to $76.17 per square foot.

Downtown

Tenants inking major deals in Lower Manhattan pushed leasing activity to 6.7 million square feet in 2017, approximately 50 percent higher than the average for the past two years and slightly higher than the 10-year average. Just like Midtown, tenants demonstrated a marked preference for Lower Manhattan’s high-end office buildings. Class A buildings Downtown captured nine of the top 11 leases the submarket posted in 2017.

The Class A average asking rent in Downtown accelerated year-over-year, rising more than $6.00 per square foot to $69.22 per square foot at year-end 2017 from $62.68 per square foot at year-end 2016. The rate gain was due to including 3 World Trade Center in the inventory and would have remained steady without the addition of the tower.

Adding 3 World Trade Center to the inventory also increased the available space in Downtown by 1.7 million square feet. Despite this, the Downtown Class A vacancy increased just 2.5 percent (or 30 basis points) in the past year, rising to 12.1 percent at year-end 2017 from 11.8 percent at year-end 2016.

Noteworthy leases inked in the fourth quarter include the New York City Economic Development Corp. relocating into 219,486 square feet at 1 Liberty Plaza, NYU Langone Health renewing its 74,069 square feet at 14 Wall Street; Momentum Worldwide leasing 58,000 square feet at 300 Vesey Street; and Convene taking 58,000 square feet at 101 Greenwich Street.

Midtown South

Midtown South posted its third consecutive quarter of positive absorption, given a continued supply-and-demand imbalance throughout the submarket. This resulted in an overall vacancy decrease of 2.7 percent (or 20 basis points) to 7.7 percent at year-end 2017 from 7.5 percent at year-end 2016.

Overall asking rents rose 7.4 percent to $74.23 per square foot at year-end 2017 from $69.12 per square foot at year-end 2016. The boost in overall rates was largely attributable to new supply additions that were concentrated in the high-priced Meatpacking District.

Creative tenants continued to make major long-term commitments to Midtown South. The largest deals the submarket saw this quarter include Mastercard Inc. leasing the entire 212,500-square-foot 150 Fifth Avenue and Omnicom Group Inc. renewing 200,000 square feet at 200 Varick Street.

A handful of tenants signed sizable subleases in Class A buildings during the fourth quarter, including Scholastic Inc. taking 45,080 square feet at 601 West 26th Street; AdTheorent Inc. leasing 38,740 square feet at 330 Hudson Street; and media firm PostWorks signing for 34,072 square feet at 345 Hudson Street.

For more news, videos and research resources from JLL, please visit the firm’s U.S. media center Web page. Bookmark it here: http://bit.ly/18P2tkv.

JLL is a leader in the New York tri-state commercial real estate market, with more than 2,400 of the most recognized industry experts offering brokerage, capital markets, property/facilities management, consulting, and project and development services. In 2016, the New York tri-state team completed approximately 28.2 million square feet of lease transactions; arranged investment sales, notes, debt and equity transactions valued at more than $12.0 billion; managed projects valued at $7.9 billion; and oversaw a property management, facilities management and agency leasing portfolio exceeding 146.7 million square feet.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the third quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of over 80,000. As of September 30, 2017, LaSalle Investment Management had $59.0 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit ir.jll.com.

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